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According to the CEO of Russia’s second-largest bank, the Chinese yuan could soon overtake the US dollar as the world’s reserve currency. China’s growing economic power and initiatives to promote yuan use abroad led to this forecast. If it continues, this trend could reshape the global financial landscape and have far-reaching effects on the world economy.
China’s Yuan Poised to Challenge US Dollar Dominance, Says VTB Bank CEO
A recent interview with Russia’s VTB Bank CEO, Andrey Kostin, pointed out that countries are looking for alternatives to the US dollar for international trade settlements due to the US and its allies trying to block Russia from accessing its substantial gold and foreign exchange reserves.
As a result of restrictions, alternative currencies are needed. Cryptocurrencies like Bitcoin have become a viable alternative to the US dollar in countries such as Russia and China. They want to use these digital currencies instead of the US dollar for international payments and transactions.
Kostin thinks China could relax its currency regulations, making the yuan more dominant than the dollar. Accordingly, China’s efforts to ease currency controls may lead to the yuan becoming a major international currency, potentially challenging the dollar’s dominance.
The long historical era of the dominance of the American dollar is coming to an end. I think that the time has come when China will gradually remove currency restrictions.
China’s Yuan on the Path to Convertibility: Implications for Global Economic Power
The rules for moving money in and out of China are strict for individuals and organizations. Foreign exchange regulations mean they can’t freely transfer money without obeying the government’s rules.
Transferring money overseas requires permission from the State Administration of Foreign Exchange (SAFE). The maximum amount you can take out of the country is $50,000 annually. Fines or prisons can result from violating these rules.
Says Kostin,
China understands that they will not become world economic power number one if they keep their yuan as a non-convertible currency.
As for China holding and accruing US debt, he says it’s “dangerous.”
In the interview, many countries worry about investing in US debt, Ray Dalio said. During the war in Ukraine, the West used the dollar to punish Russia, which has made some nations hesitant. Moreover, Dalio believes the United States is in a debt crisis since the government might have trouble finding buyers for new bonds.
The observations highlight the potential impact of geopolitical events on US debt perception and investment. Dalio suggested countries should diversify their portfolios to protect their investments from political risks. Inflation and higher taxes are also potential consequences of a US debt crisis.
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